QBE Insurance, Lendlease and Spark Infrastructure - First Impressions from reporting

Bell Potter

QBE Insurance (QBE): Better than expected result – GWP ahead (NEP impacted by FX), COR ahead and margin ahead – and underwriting and pricing strategies working. North America on the mend, further improvements likely in 2017 and 2018 (go Trump). Investment returns as expected, capital strong – thus 10% increase in final dividend to A$0.33 and planned on-market buyback up to A$1bn over the next 3 years. | GWP US$14.4bn (BP US$14.0bn, guidance US$13.7-14.1bn);NEP US$11.1bn (BP US$11.7bn, guidance US$11.5-11.9bn);COR 93% (BP 96%, guidance 94-95%); Net investment yield 2.6% (BP 2.7%, guidance 2.7%); Reported insurance profit margin 9.7% (BP 7.6%, guidance 8.5-10.0%);ROE 8.1% (BP 6.9%, consensus 7.0%); Reserve release 3.3% of NEP (BP 3.6%); and CET1 multiple 1.27 times (BP 1.33 times), PCA multiple 1.79 times (BP 1.83 times). | Outlook: 2017 target: “We anticipate that the market backdrop will remain challenging in 2017, although indications of modest improvement are now emergingGWP relatively stable, combined op ratio 93.5% - 95%, Investment return 2.5% - 3%.”

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Lendlease (LLC): Operating business profit after tax up 8% to 463.3m: Australia up 17% to $451m; Asia $5m as compared to ($28m) pcp; Europe down 92% to $6m; Americas up 27% to $42m. | Development pipeline of $49bn vs $48.8 FY16. Construction backlog revenue stands at $20.5 billion with further work of approximately $7 billion in preferred bidder status. Residential presales stand at $5.7bn (apartments $4.9bn vs $5.2bn in pcp). | Net operating cash flow ($70m) as compared to $201m 1H17 gearing at 5.1% vs FY16 at 6.5% as a result of the sell down of Circular Quay Tower and the NZ Retirement Business. OPCF were negative so investing cash flows via these sales accounted for the gearing drop vs FY16. | Outlook: “The Group remains well positioned with strong growth achieved across all segments of the operating platform compared to the prior corresponding period.”

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Spark Infrastructure (SKI): Look through operating cashflow of A$372m as compared to our estimate of $347m. | Outlook: The Directors have also reaffirmed distribution guidance for 2017 and 2018, subject to business conditions, of 15.25 cps and 16.0 cps, representing annual growth of 5.2% and 4.9% respectively.

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